Treasury and IRS release final foreign tax credit regulations

December 2021

In brief

Treasury and the IRS on December 28 released final regulations (the ‘2021 Final Regulations’) addressing various aspects of the foreign tax credit (FTC) regime. 

The 2021 Final Regulations finalize, among other provisions, the proposed FTC regulations released on September 29, 2020 (the ‘2020 Proposed Regulations’), including guidance with respect to the disallowance of a credit or deduction for foreign income taxes with respect to dividends eligible for a dividends-received deduction; the allocation and apportionment of interest expense, foreign income tax expense, and certain deductions of life insurance companies; the definition of a foreign income tax and a tax in lieu of an income tax; transition rules relating to the impact on loss accounts of net operating loss carrybacks; the definition of foreign branch category income; and the time at which foreign taxes accrue and can be claimed as a credit. 

The regulations also contain clarifying rules relating to foreign-derived intangible income (FDII). 

The 2021 Final Regulations contain 147 pages of preamble language and 219 pages of regulatory text. The 2021 Final Regulations are effective 60 days after publication in the Federal Register, which is scheduled for January 4, 2022.

An Insight with more analysis of the regulations will be published in the coming days. For additional information on the 2020 Proposed Regulations, see PwC’s Tax Insight, Preliminary highlights from the 2020 final and proposed foreign tax credit regulations.

The takeaway

Taxpayers should consider how they might be impacted by the 2021 Final Regulations and consider commenting on issues that they would like Treasury to address.

Contact us

David Sotos

Partner, International Tax Services, PwC US

Julie Allen

National Tax Services and Mergers & Acquisitions Tax Leader, PwC US

Gregory J. Ossi

Principal, Transfer Pricing, PwC US

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